HM Revenue & Customs published new data on pension saving yesterday. I summarise it a follows (I stress, the totals on here are my additions):
(Clicking on the image and then on the resulting image will bring up a much larger version).
I have two points to make. First, we spent £54.8 billion subsidising pensions in 2016/17. Most of the beneficiaries were already well off. This is current government spending:
My questions are simple. First, is that a good use of public money? Second, how is this fair when it increases inequality?
Then look at the decade since 2007/08, or in other words that of the Global Financial Crisis. In this decade the country has spent £481 billion on pension tax relief. Most of this has not created new productive investment, job creation, public infrastructure or an increase in overall wealth. It has just boosted the stock exchange.
My question on this then is as simple: wasn't there a better use for public money than that?
Wouldn't future pensioners have been better off if housing had been built for their children?
Or hospitals for their care?
And if PFI had been bought out?
Or the UK had been equipped by them with world beating transport infrastructure so that the next generation had been better equipped to generate the wealth required keep them in old age?
Instead all that money has gone into boosting the value of second hand pieces of paper (otherwise called shares) that are subject to revaluation at a moment's notice. Oh, and the City got a substantial rake off, of course.
Can't we do better than this?
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You ask “Second, how is this fair when it increases inequality?”
It seems to me that inequality of consumption is being reduced as it is being deferred. Inequality of wealth is increasing. Welcome to the world of trade-offs.
It seems obvious to me that a monetarily sovereign government should provide a pension to every retiree that is big enough to provide a decent middle class income in retirement, and enough so that demand is high enough to keep the private economy running smoothly.
If people want more retirement income let them save the money with no subsidy from the state.
State subsidies for saving are, to my mind, simply an unjustified intervention in the market.
Properly run state pensions can be a powerful lever to keep the private sector solvent.
Couldn’t agree more.
Surely if these pensions are being “subsided” as you say, (which they aren’t given they get taxed when the pension is drawn, unless you are saying pension investments should be taxed twice), then don’t public sector pensions also deserve the same treatment?
Given public sector pensions are already better than private ones, wouldn’t this mean is was time for these public sector pensions to be reduced – as otherwise the government is “subsidising” them to a huge extent as well – something like 45bn a year if I’m not mistaken.
So if private sector pensions should not get tax relief, why should public sector pensions?
Rosemary
The tax collected later is not the same as the tax relief given – and is usually at a lower rate
And you ignore the time value of money
And then you choose to attack decent pensions, demanding they be reduce to the rubbish standard the private sector now offers when once it too tried to do the right thing by empl,oyees
I am struggling: how am I meant to engage with diatribe and claims that are wrong?
Please either engage accurately or please don’t bother
Richard
Richard you are wrong:
If most pensions are taxed at a lower rate than the tax relief granted, then most are certainly not being paid to the wealthiest people – most will be below the amount that public sector employees are receiving.
Public sector employees benefit not only from the same tax reliefs, but (much more significantly) from a massive subsidy from the taxpayer. Are you suggesting that public sector workers should have their contributions increased or are you suggesting that the taxpayer should make even bigger subsidies?’
And the biggest nonsense of all is your comment on the time value of money – over the long-term, pension funds are likely to accumulate at a rate that meets or exceeds a credible discount rate, so the present value of tax may exceed the tax relief granted.
Thanks for your comment Bill, which is baffling in its profound confusion
Are you aware that all pensions I have ever seen are lower than incomes paid when at work? Your first observation is then nonsense.
Your second isca straw man: I was arguing that there is no reason to cut one pension because another has been. How you reached your conclusion is baffling.
And re the third, you a) do not seem to get the time value of tax relief as a variable in its own right or b) that the accumulation is tax free, a fact I had not mentioned.
I am sorry, but to say I am wrong in the basis of nonsense will not do. I can be wrong, but you are a long way from proving it.
Pensions when drawn are taxed as income tax, so are taxed at exactly the same rate. The only difference is maybe you earn less from a pension than from earnings.
I think you are ignoring the time value of money. If you tax pensions on the way in, you are making it even worse for those pension savers.
You are directly attacking private sector pensions by saying they are subsidised and should not get tax relief. I am simply asking that if you think that is the case, why should public sector pensions, which are more heavily subsidised by government and the taxpayer also get what are much more generous tax reliefs? Or why indeed should they be higher than private pensions?
We do not have a flat tax system
Pensions are overall taxed at lower rates then
You miss that point and the rest
I am sorry – but I can’t engage with repetition of errors
If I have got my maths right, abolishing tax relief on pensions to save £54 billion would allow the government to increase the weekly state pension for the 12 million people aged over 65 by about £85 per week.
Life changing for many then
Richard
Why do you focus on the gross number, not the net number? What is the tax paid on pensions in payment each year?
Lower private pensions would lead to higher support required in retirement from the State – what would that cost.
Which public sector workers can afford to pay increased contributions to fund their pensions, particularly those just starting out who may have other debts too?
I do this because the offset shown by the government in its presentation of this data is wholly misleading, and false accounting.
My claim in this respect is easily proved. Let’s presume for a moment that we stop all pension tax relief now. That means that the gross sum to which I refer would, henceforth, be saved. However, there is absolutely no reason at all why this would mean that pensions paid out of past contributions made on which tax relief have been given should not now be taxable i.e. the tax income in question would continue. Therefore current tax relief and revenues generated from pensions now paid out of past pension contributions are wholly unrelated to each other and the offset is entirely inappropriate and deliberate false accounting.